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Taibbi is on the story

that I've always said is the golden chalice for any financial reporter who is intrepid enough to go there. Although I certainly won't guarantee how intrepid he'll be or how far he'll get.


To refresh memories, Fanny wasn't able to issue financial reports as early as 2006, freddie soon after. At that point default rates were historically low and they never acquired a high percentage of lower grade loans although they did try to get some market share back from the private label underwriters.


They were probably bankrupt at that point, at least technically (or maybe more accurate to say weren't technically). But it didn't have to do with bad underwriting and defaults.


The problem is with the standard 30 year, fully callable mortgage that underpins the housing market and subsidizes most middle class families.


It's nice to not have to pay a penalty if you move or refinance, but when interest rates are dropped precipitously beyond what is forecast, it creates huge problems. They try to hedge rates, which is pretty straightforward. But hedging duration is much more complicated. Almost certainly they entered into derivative strategies with The Usual Suspects to try to do that and almost as certainly they failed spectacularly, sucking, probably $Billions, off their balance sheets. With the Bush Adminsitraion desperately trying to blow a housing bubble to counteract the popping of the stock bubble, nobody wanted to talk about it. And the recipients certainly didn't either.


If anybody can find who were the counterparties to those derivatives, much will be revealed. Although enough time has passed I'm not sure who cares, and even for people who do they tend to prefer simpler answers with a partisan purpose.



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Re: Taibbi is on the story

One would think that with the hatred for Obama as intense as it is that ALL of the factions in the GOP would be flagging this.


Problem is, it's exactly what any GOP pol would have done, out of deference for Gramm, Greenspan etal.